Money Buzz! Europa

Category: Economy

  • Business leaders are optimistic about recovery in Europe

    Business leaders are optimistic about recovery in Europe

    Two-thirds (66%) of business leaders globally are optimistic that the European market will make a relatively fast recovery from the economic downturn caused by the COVID-19 pandemic, according to a new report from Accenture.

    The report, entitled “Bold Moves in Tough Times” and based on a survey of nearly 500 C-level executives in Europe, North America and Asia-Pacific across 15 industries, found that approximately three in 10 respondents (29%) expect the recovery in Europe to be fairly rapid (“V-shaped”), while 37% anticipate a slower, but steady, “U-shaped” recovery in the next 12 months.

    The most optimistic sector is pharmaceuticals/biotech/life sciences, with 34% of business leaders in that sector expecting an increased demand in Europe as a result of the pandemic. The second-most-optimistic sector is communications, media & entertainment, with 52% of those respondents expecting a V-shaped recovery in their European markets, followed by insurance, at 47%.

    At the other end of the spectrum are the automotive and airlines/travel/transportation sectors, with only 7% and 12% of respondents, respectively, expecting a rapid recovery.

    The report also reveals that executives expect the German, Nordic and U.K. economies to rebound the fastest from the downturn, followed by France, Spain and Italy.

    In addition, European business leaders are optimistic regarding Europe’s competitiveness, as four in 10 respondents (39%) believe that European companies will be more competitive vis-a-vis their U.S. peers than they were before the crisis, and even more (43%) believe that European companies will be more competitive compared with Chinese businesses.

    Accenture’s research indicates that there is a risk that executives in Europe are overly cautious regarding how they prepare for the rebound, compared with those in North America and Asia-Pacific.

    Specifically, European executives appear to be:

    • Focusing on incremental rather than game-changing innovation: More than half (53%) of European respondents said they are slowing investments in innovation and won’t relaunch any initiatives in the next six months, compared with 33% of respondents in North America and 49% in Asia Pacific.
    • Underinvesting in the future of business: In Europe, only about one in seven companies (16%) is already investing in initiatives to prepare for the rebound, compared with one in four (25%) in Asia Pacific and one in three (34%) in North America.
    • Less likely to collaborate to rebound: Business leaders in Europe are slightly less likely than those in North America and Asia-Pacific to collaborate with other companies to mitigate the impact of the crisis and rebound faster (48% of those in Europe, compared with 53% in North America and 55% in Asia-Pacific).
  • Spending intentions are deeply affected by Covid-19 crisis

    Spending intentions are deeply affected by Covid-19 crisis

    The preference for online shopping is growing, care for physical and mental health has become as high as care for the job, while spending intentions are deeply affected by declining personal incomes, according to PwC’s Global Consumer Insights Survey.

    Consumer behavior change in 2020, following the outbreak of the COVID-19 pandemic, highlights three major trends: digital adaptation, concern for health and sustainability:

    • 45% of global consumers say healthcare is one of the top three reasons for living in a city
    • 69% of global consumers are more focused on mental health and well being
    • 43% of global consumer expect businesses to be accountable for their environmental impact

    More online shopping

    While in-store grocery shopping is the main channel of choice, over a third of consumers (35%) are now buying food online, with 86% of those who shop online planning to continue after social distancing measures are removed.

    For non-food items, prior to the pandemic in-store shopping was still dominant compared to online shopping with 47% of consumers saying they shopped at brick-and-mortar stores daily or weekly compared to shopping via mobile phones (30%) and computers (28%).

    Since then, online shopping for non-food items has seen a substantial increase: mobile phone 45% and computer 41%.

    Growing self-care concerns

    Focus on self-care has increased, with 51% of urban consumers agreeing or strongly agreeing that they are more focused on taking care of their mental health and wellbeing, physical health and diet as a result of COVID-19.

    Urban dwellers surveyed after the outbreak, viewed safety and security, and healthcare just as important to their quality of life as employment prospects, with 49% and 45% of respondents saying so, respectively, compared to 45% for employment.

    Impact on personal expenses

    Before the outbreak, consumer confidence was sky-high, with almost half (46%) of our survey respondents saying they expected to spend more in the next 12 months. When we reached back out to people after the outbreak had begun, 40% reported a decrease in income as a result of job loss or redundancy.

    In addition, the percentage of those who said they were going to spend less in the next few months almost doubled, and the number who said they were going to spend more dropped by more than 10 percentage points.

    • 41% said their household bills (e.g., food, home heating, electricity) increased.
    • 40% experienced a decrease in household income due to redundancy/loss of job/
    • reduction in hours.
    • 18% have experienced a decrease in income and an increase in household bills

    Currently, consumers spend less on most categories of non-food products, with the largest decreases in clothing and footwear (51%) and sports equipment (46%).

    Consumers and sustainability

    In survey results taken prior to the pandemic, 45% of our global respondents say they avoid the use of plastic whenever possible, 43% expect businesses to be accountable for their environmental impact, and 41% expect retailers to eliminate plastic bags and packaging for perishable items.

    Interestingly, when we asked consumers who were most responsible for encouraging sustainable behaviours in their city, 20% chose “me the consumer,” while 15% chose “the producer or manufacturer.”

  • United States: Two-speed business bankruptcies

    United States: Two-speed business bankruptcies

    As the COVID-19 epidemic hits the United States very hard, Coface forecasts in its baseline scenario that the country’s GDP will contract by 5.6% in 2020, before rebounding by 3.3% in 2021.

    Nevertheless, this forecast is threatened by the resurgence of the outbreak in several states, which are already pausing or even reversing the resumption of activity after the extensive lockdown of April.

    On the bankruptcy front, the sharpest drop in GDP should be followed by a massive increase in business bankruptcy filings.

    Nonetheless, since the beginning of the crisis, the latter has fallen since February, driven by a significant drop of bankruptcy filings under Chapter 7 of the US bankruptcy law (liquidation).

    At the same time the number of companies seeking Chapter 11 protection (reorganization) is up sharply (+48% year-on-year in May), indicating that bankruptcies related to COVID-19 are already brewing. Coface forecasts bankruptcy to rebound in the second half of 2020, with an expected increase of 43% between the end of 2019 and the end of 2021.

    Furthermore, Coface’s estimates show that the “zombie” companies, which have grown over the last decade to represent more than 6% of companies in 2019, could also be pushed into bankruptcy in the coming months. The number of companies in difficulty is also likely to multiply as a result of the accumulation of debt.

    Falling bankruptcies in recent months: a sham situation

    2019 saw the first annual increase in bankruptcies since 2009 with an increase in proceedings initiated in 2019 by 2.5% compared to 2018. Data released after the first quarter of 2020 shows that after a jump of 21% in January, corporate bankruptcy proceedings began to decline starting in February.

    As in Europe, measures to support corporate liquidity, a wait-and-see attitude of debtor companies and the closure of bankruptcy courts might explain this trend.

    However, given the magnitude of the shock and while the support measures should gradually expire, business failures in the United States are expected to accelerate.

    The health of aggregate company balance sheets highlights that the aerospace, retail, automotive and energy sectors are the most vulnerable to this situation.

    Bankruptcies and “zombification” threaten debt-laden companies

    The “zombie” companies, which continue to operate despite precarious solvency and profitability, could also be pushed into bankruptcy in the coming months.

    More importantly, with more companies forced to leverage debt to cope with revenue losses, the threat of a multiplication of distressed companies is added to the risk of bankruptcy.

  • Bulgaria enters the waiting room for the eurozone and the banking union

    Bulgaria enters the waiting room for the eurozone and the banking union

    The European Central Bank included the Bulgarian lev in the Exchange Rate Mechanism (ERM II).

    The central rate of the Bulgarian lev is set at 1 euro = 1.95583 leva and the standard fluctuation band of plus or minus 15 percent will be observed around the central rate of the lev.

    The agreement on participation of the lev in ERM II is based on the commitment by Bulgaria to join the Banking Union and ERM II simultaneously and the completion by the Bulgarian authorities of a set of measures, described in an letter of intent dated 29 June 2018.

    These measures pertain to the following six policy areas: banking supervision, the macroprudential framework, the supervision of the non-banking financial sector, the anti-money laundering framework, the insolvency framework, and the governance of state-owned enterprises.

    The agreement on participation of the Bulgarian lev in ERM II is furthermore accompanied by a firm commitment by the Bulgarian authorities to pursue sound economic policies with the aim of preserving economic and financial stability and achieving a high degree of sustainable economic convergence.

    The Bulgarian authorities have committed to implement specific policy measures on the non-banking financial sector, state-owned enterprises, the insolvency framework, and the anti-money laundering framework.

    Bulgaria will also continue implementing the extensive reforms carried out in the judiciary and in the fight against corruption and organized crime in Bulgaria, in light of their importance for the stability and the integrity of the financial system.

  • Household saving rate all time high at 16.9% in the euro area

    Household saving rate all time high at 16.9% in the euro area

    The household saving rate in the euro area was at 16.9% in the first quarter of 2020 compared with 12.7% in the fourth quarter of 2019.

    This was the highest increase since the beginning of the series in 1999.

    The household investment rate in the euro area was 8.7% in the first quarter of 2020, lower than the rate of 9.1% during the previous quarter.

    These data come from a first release of seasonally adjusted quarterly European sector accounts from Eurostat, the statistical office of the European Union and the European Central Bank (ECB).

    The quarterly increase of the household saving rate of 4.2 percentage points is related to 0.9% increase of gross disposable income and 4.0% decline in individual consumption expenditure of households.

    The quarterly decline of 0.4 percentage points compared to the previous quarter is explained by 3.2% decline in gross fixed capital formation and 0.9% increase of gross disposable income.

  • Austria cut taxes to 5% in several sectors

    Austria cut taxes to 5% in several sectors

    Gastronomy, hotel industry, art & culture and media companies will benefit from VAT reduction, writes Heute.

    Thus, the tax on food will be reduced from 10 to 5 percent, while the tax on drinks will be reduced from 20 to 5 percent.

    It also applies to sausage stalls and catering. Contrary to initial plans, it also includes butchers, bakers and confectioners who sell food and beverages.

    Until now, a tax rate of 13 percent has applied to art and culture

    Over the next six months, sales of art, theatre, opera or concert tickets, as well as tickets to museums, zoos, nature parks and cinemas, will be taxed at just 5 percent.

    Circuses and showmen will also benefit from the reduced tax rate for six months.

    Money for newspapers

    5 percent tax applies to books (including e-books), but also to newspapers and magazines.

  • Bulgarians made 83.3% of total travels only within the country in Q1 2020

    Bulgarians made 83.3% of total travels only within the country in Q1 2020

    In the first quarter of 2020, 490.7 thousand Bulgarian residents made tourist trips. The majority (83.3%) of them travelled only within the country, 14.2% only abroad and 2.5% both in the country and abroad.

    Compared to the same quarter of 2019 the total number of the travelled persons aged 15 and over decreased by 47.2%.

    In all age groups predominated the share of the trips in the country, as the highest was the share among persons aged 25 – 44 years – 87.8% from the travelled in this age group.

    About the trips abroad the share of residents aged 15 – 24 years was the highest – 30.5% of travelled in the respective group.

    The majority of tourist trips of persons aged 15 and over in the country were to ”visit relatives” (48.3%), while those made abroad were for ”holiday and recreation” (43.4%).

    In the structure of the expenditure the highest relative share was the expenditure on food in domestic trips – 37.4%, while in outbound trips was on transport – 35.2%.

    A person spent on the average for private trip 151,75 BGN in the country and 674,37 BGN for private trip abroad.

  • Greece: Growth rate of total credit in domestic economy at 4.0%

    Greece: Growth rate of total credit in domestic economy at 4.0%

    Bank of Greece show that in May 2020, the annual growth rate of total credit extended to the domestic economy increased to 4.0% from 2.0% in the previous month.

    The monthly net flow was positive by €3,037 million, compared with a positive net flow of €2,512 million in the previous month.

    The annual growth rate of total deposits decreased to 6.1% from 6.8% in the previous month.

    The monthly net flow was negative by €200 million, compared with a negative net flow of €2,683 million in April 2020.

    Decrease of credit to individuals, increase of households deposits

    The monthly net flow of credit to individuals and private non-profit institutions was negative by €89 million, compared with a negative net flow of €241 million in the previous month.

    The annual growth rate stood at -2.8% from -3.0% in the previous month.

    In May, deposits placed by households and private non-profit institutions increased by €194 million, compared with an increase of €1,554 million in the previous month.

    The annual growth rate stood at 7.0% from 7.1% in the previous month.

  • How Covid-19 crisis will impact economies in Italy and Spain

    How Covid-19 crisis will impact economies in Italy and Spain

    According to Coface forecasts, Spain and Italy will be among the economies hardest hit by COVID-19, contracting by 12.8% and 13.6% respectively in 2020.

    Corporate insolvencies are expected to increase by 22% in Spain and 37% in Italy by 2021, relative to 2019 levels.

    For 2021, Coface forecasts that Spain and Italy’s GDP will rebound by 10.2% and 8.9%, leaving the economies 3.9% and 5.9% below 2019 levels.

    Higher prevalence of vulnerable enterprises in Italy with the spectre of zombie firms

    In order to assess the potential impact of this GDP contraction on company balance sheets, Coface ran simulations on the evolution of corporate solvency, using data from the Spanish and Italian central banks that accounts for differences across sectors and firm sizes.

    Even though interest rates are extremely low, corporate over-indebtedness is associated with depressed private investment. As a result, the COVID-19 crisis could exert durable downward pressure on a country’s growth potential, accelerating the “Japanization” of the eurozone.

    With this in mind, the balance sheets of Spanish and Italian companies should be analysed more closely. Examining the distribution of debt and liquidity in the corporate sector in Southern Europe should help to identify pockets of vulnerability.

    The current financial situation of companies in Spain and Italy is healthier than on the eve of the 2009 global financial crisis.

    Since then, Spanish companies have managed to significantly reduce their debt by 20 percentage points, reaching 37% of their assets in the third quarter of 2019.

    Italian companies have also improved their financial situation since the 59% peak in Q4 2011, albeit to a lesser degree. With a debt ratio of 50%, businesses in Italy are now the most indebted among the major European economies.

    The growing mismatch between financing and investment can be indicative of a high prevalence of “zombie” firms in Italy – companies steeped in debt that will not be able to sowing the seeds of future growth.

    Sectors at risk: automotive, construction, and retail

    Coface expects the vulnerability of firms to differ according to their sectors and size, not only in terms of the intensity of the shocks, but also given the pre-coronavirus fragility of their balance sheets.

    The major car manufacturers could be in difficulty because of their habit of keeping little liquidity: at the end of 2018, cash reserves as a percentage of sales were only 2.7% in Italy and 0.5% in Spain.

    As for the retail and construction sectors, with high leverage and low projected interest coverage rates, they appear particularly vulnerable, as do Italy’s small textile manufacturers.

    Coface observes a higher prevalence of potentially vulnerable companies in Italy. In most cases, this can be explained by lower initial cash flow, lower profitability, and slightly slower cost adjustments.

    In this context, many companies would survive only at the cost of substantially higher levels of debt.

  • US personal saving rate rockets 4x. Commercial banks deposits up by 15%

    US personal saving rate rockets 4x. Commercial banks deposits up by 15%

    Data gathered by Buyshares.co.uk indicates that the United States’ personal saving rate grew by at least four times between January and April 2020.

    According to the data, the rate stood at 33% as of April this year.

    In January, the rate was 7.9% before slightly rising to 8.2%. By March, it hit 13.1% before the April high.

    Before the 2020 spike, the highest rate was in December 2018 at 8.8% while the lowest rate was in December 2015 at 5.8%. Between June 2015 and December 2019, the rate remained fairly constant averaging at 7.2%.

    Commercial banks deposits up by 15%

    Buyshares.co.uk’s research also reviewed the United States commercial banks’ deposits.

    Between January and May this year, the rate grew by 15.22%. In January, the figure stood at $13.3 trillion while in May it was $15.32 trillion.

    In March, the deposit increased to $13.85 trillion a percentage increase of 3.5%. By April, the growing amount in deposits kept growing to stand at $14.72 trillion.

    From July 2015, the deposit has been undergoing an upward trajectory to grow by 42.58% by May this year.

    During the period under review, the lowest deposits held by US commercial banks were recorded in December 2015 at $10.92 trillion.

    The Buyshares.co.uk research report notes that most Americans who lost their jobs as a result of the pandemic were depositing checks from Federal unemployment benefits hence the spike.

  • Banks across CEE suffered a slump in profits over the first quarter of 2020

    Banks across CEE suffered a slump in profits over the first quarter of 2020

    Banks across Central and Eastern Europe (CEE) suffered a slump in profits over the first quarter of 2020 as the banks set aside provisions for the impact of the coronavirus crisis on loan quality, says latest Moody’s report.

    Hungary’s OTP Bank, reported a small quarterly loss. High provisioning charges and interest rates cuts will compress net interest income, in the coming quarters.

    Profitability pressure will be particularly acute for Czech and Polish banks due to aggressive rate cuts by their central banks. Efficiency will suffer as lower revenues meet banks’ rigid cost base

    Loan quality is stable so far

    The banks have not automatically classified loans benefiting from payment moratoriums as Stage 2 (riskier) loans under IFRS 9 accounting standards.

    Nevertheless, these riskier loans have increased at some banks. Moody’s expect further loan quality deterioration once the moratoriums expire.

    Hungarian banks will be hit hard by the government’s blanket payment moratoriums on all loans, meaning borrowers must opt out to be excluded. Hungary’s central bank MNB expects an opt-out ratio of around 30%

    Capital buffers show a mixed picture

    Czech banks’ risk-adjusted capital position improved in the first quarter, although capital to total assets declined. The remaining banks reported broadly stable capital ratios.

    CEE regulators have granted greater flexibility in capital management by reducing regulatory minimum capital requirements

    Funding and liquidity are stable

    Banks across all systems have ample access to liquidity through their central banks. Hungary, Poland and Romania have launched government bond purchasing schemes to support bond prices and reduced the regulatory reserve requirements, thereby increasing banks’ liquidity.

    In the Czech Republic the government has amended the law to allow for quantitative easing by the central bank, although no use has yet been made of the tool

  • Overnight stays in Vienna fell by 97.5% in May to only 39.000 people

    Overnight stays in Vienna fell by 97.5% in May to only 39.000 people

    Overnight stays in Vienna fell by 97.5% to 39,000, while arrivals fell by 98.1% to 14,000 in May 2020.

    From January to May, 2.603.000 overnight stays were counted, a decrease of 59.3%.

    In Austria, the ban on tourist accommodation was in force until 28 May.

    Vienna’s accommodation establishments had 39.000 overnight stays in May, 97.5% less than in the same month of the previous year, about half of which came from Austria.

    The average occupancy of hotel beds fell to 4.5% (05/2019: 65.2%), those of the rooms to around 6% (05/2019: around 84%).

    A total of around 25.000 hotel beds were available in Vienna in May 2020, around 62% less than in the same month of the previous year.

    The net overnight turnover of Vienna’s accommodation establishments fell by 94.9% to EUR 4,869,000 in April – data for May are not yet available.

    From January to April, the companies generated EUR 128,523,000, down 51.2% compared to the corresponding period in 2019.